A buzz is in the air about the Downpayment Toward Equity Act of 2021. So much so, some realtors and financial companies are marketing it. These companies are touting that you can get $25,000 towards a new home and never have to pay it back. This sounds great, doesn’t it? Not so fast. Let’s look at the Act to determine what is fact and what is fiction.
First, this legislation is in the proposal stage. It is not law and it is not an available program. If passed into law, this legislation can be a great resource for first time home buyers, but it has a long way to go. It is not my intention to be a Debbie Downer, but I do want to help my readers avoid being scammed. At this point, the promise of the Act has potential for scammers. Be cautious – there is NO Act as of the date of this article.
What is Proposed?
The National Council of State Housing Agencies has released a great summary of the Act. Here are the key takeaways:
How Much Money
Down payment, and related costs, assistance for first-generation home buyers – up to $20,000 or $25,000 for those who qualify as a socially and economically disadvantaged individual.
There are eligibility requirements to participate in this proposed program. First, you have to qualify as a first-generation home buyer. First-generation includes first-time home buyers. First-time home buyers are those who have not owned a home in the prior three years. First-generation home buyers are defined as any individual whose parents or guardians:
- never owned their own home during the home buyer’s lifetime or
- previously owned a home during the home buyer’s lifetime but lost the home to foreclosure, short sale, or deed-in-lieu of foreclosure and do not currently own a home.
Also, any individual who lived in foster care also qualifies as a first-generation home buyer.
The second eligibility requirement is an income requirement. Income for home buyers in low-cost areas should be at or below 120% of the area-median-income (AMI) and those buying in the high-cost area, the homebuyers income must be at or below 180% of the area AMI.
For example, the AMI for a 4-person household in the Middlesex/Somerset/Hunterdon County HUD Metro area of New Jersey is currently $116,050.00. So, if your household income is more than $116,050.00, and that includes income from all sources, and you have a household of 4 people in Bridgewater, New Jersey, then you will not qualify under the Downpayment Toward Equity Act of 2021 as it is currently proposed. This chart may help you determine if you think you and your household may qualify: https://www.state.nj.us/dca/divisions/dhcr/offices/docs/nsp/hudincomelimits.pdf
Also, to make sure we avoid confusion, although the AMI provides a median household income assessment for HUD, it is not necessarily the same as the median income guidelines for the means test, which determines whether a debtor presumptively qualifies for a chapter 7 bankruptcy. The current means test guidelines can be found on the United States Trustee’s website.
Participants in the program must complete a home purchase counseling program provided through a HUD-approved housing counseling agency. States would be allowed to waive this requirement for home buyers who meet specific underwriting criteria established by HUD.
You will have to pay back the full amount in you leave the home less than year after you buy it. For each year you live in the house, your pay back obligation decreases by 20%. Therefore, there is no pay back obligation after 5 years.
I cannot stress enough that this is merely proposed legislation. I saw a Facebook post that made it seem that this Act was a law! It actually said New house, no down payment. The post was shared 11,000 times and generated 1,500 comments. That shows a total disregard for the fact that this is proposed legislation and not a law – at least not yet. That’s a shameless marketing hack right there!!! Remember, although this is a great idea and we hope this help does becomes available for those who need it and could benefit from it, there have been no hearings or votes on the Downpayment Toward Equity Act of 2021.
If and when this Act passes, it could be a great resource for many Americans. Let’s wait and see what happens. In the meantime, please call me if you have any questions about this blog or other financial questions.